Politicians, especially those of the Republican stripe, like to claim that most new jobs are created by small businesses. And according to the Small Business Administration (SBA), that claim is accurate. The SBA reports that 65% of America’s new jobs created in the past 17 years were created by small businesses (those with fewer than 500 employees).
I have no quarrel with the factual claim that small businesses create most new jobs, but I vigorously disagree with the significance of that fact. My thinking is that (1) the vitality of an economy – whether local, state, or national – depends on its ability to export products, and (2) large businesses, not small businesses, produce the products that an economy exports. This thinking is reflected in the old saying, “As GM goes, so goes the nation.”
While visiting Steubenville, Ohio that past week, I saw what happens to a local economy when it loses its ability to export products. For decades, Steubenville exported steel and when that industry died, so did Steubenville. According to the US census, Steubenville lost more population than any other metropolitan area in America between 1980 and 2000. In a sense, all of the small businesses in Steubenville existed to support the big businesses that produced the exportable products.
When the big businesses die, the same thing will inevitably happen to the small businesses, not matter how efficient they are.
When I was living in North Dakota in the ‘80s, I remember telling people that the only reason that North Dakota existed as an economy was to produce agricultural products. If the land wasn’t productive, the entire economy would dry up and blow away. Today, that is not entirely accurate because, not only has North Dakota hit the jackpot with oil, but its educated workforce has attracted some technology companies that export products.
This concept of producing exportable products has wide application to the way that I think about a plethora of issues, such as:
- The HEB grocery chain is not nearly as significant to San Antonio’s economy as it appears to be. If HEB didn’t exist, some other grocer would take its place in selling groceries. HEB merely cuts up the pie of available money in San Antonio’s economy; it doesn’t grow the pie.
- By contrast, military installations grow San Antonio’s economic pie, which can then feed hundreds of small businesses that live directly off the military or indirectly off its employees.
- Corporations that create exportable products are critical to a thriving economy, and that is why Toyota (or Rackspace, Valero, et al.) is so important to San Antonio. .
- Good colleges are important, not only by attracting students from other economies, but also by getting your young people to stay in San Antonio instead of taking their money somewhere else. Reducing imports is just as effective as increasing exports.
- Although small businesses do not generally create exportable products (or bring in money from other economies), they are important in the sense that if they are run poorly, their inflated costs are passed on to their customers. If their customer is a big business, that business will be less able to produce competitive, exportable products, and if their customer is an individual consumer, that consumer will have a diminished quality of life.
When San Antonio gives a tax incentive for a business to locate here, I hope the incentives go to businesses that enlarge the pie (i.e., a manufacturer with 50 employees), not those that merely cut up the pie (a big restaurant with 200 employers). One might argue that attracting a sports team falls in the category of merely cutting up the pie of San Antonio’s entertainment dollars. But others would counter that a sports team, like a symphony, affects a city’s quality of life and, thereby, its ability to attract big companies that will produce exportable products.
Bottom line – human capital is critical to San Antonio’s long-term success, and that means having smart, hard-working people. Sometimes that means attracting such people to move here, but ideally we should be growing our own. And let’s hope San Antonio and America don’t follow GM’s path.